Insider Dealing and Market Abuse: The Financial Services and Markets Act 2000

The Financial Services and Markets Act 2000 (FSMA) provides the statutory framework for the new UK market abuse regime, which became effective on 1 December 2001. The FSMA market abuse regime provides new powers to the Financial Services Authority (FSA) to sanction anyone who engages in 'market abuse', that is misuse of information, misleading practices, and market manipulation, relating to investments traded on prescribed UK markets. It also applies to those who require or encourage others to engage in conduct that would amount to market abuse. FSMA's stated objective is to fill the 'regulatory gap' by giving the FSA substantial powers to punish unregulated market participants whose market conduct falls below acceptable standards, but does not rise to the level of a criminal offence. This paper analyses the major features of both the UK insider dealing legislation contained in Part V of the Criminal Justice 1993, the FSMA market abuse regime contained in section 118 of the Act, and the proposed European Union Directive on Market Abuse that represents a significant level of convergence in European securities regulation. The paper argues that an efficient price discovery process for securities markets can be facilitated only by a comprehensive regulatory regime that provides substantive standards and rules that ensure high standards of transparency and disclosure through effective enforcement. An amended version of this Working Paper appears Rider, B., Alexander, K. and Linklater, L. (2002) Market Abuse and Insider Dealing, Butterworth.